QUESTION 1 (25 MARKS)While you were involved in the audit of your client White...

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Accounting

QUESTION 1
While you were involved in the audit of your client White Cross(Pty) Ltd, the following policies, procedures and conditionsexist:
1. There is strong segregation of duties in the inventory cyclebetween receiving inventory, its custody, the issue of inventoryand the recording of all movement in the inventory records.
2. The board of directors and senior management meet every sixmonths to identify the challenges facing the company and howsuccessfully they are being addressed.
3. The company’s organizational structure is designed in such a wayas to provide the board with a realistic chance of achieving itsobjectives on an ongoing basis.
4. The human resource department goes to great lengths to definethe skills necessary for each job category and to recruit suitablepersonnel.
5. The financial director meets frequently with the financialaccountant to ensure that information required to be disclosed byIFRS is properly accumulated, recorded and processed.
6. Access to the company’s network is controlled by the use ofcomprehensive logical controls, eg: user IDS’s, user profiles,passwords, and is granted on a need to know basis.
7. The recording in the general ledger of sales, purchases, etc,processed by the computer is achieved by passing journal entries.All journal entries are scrutinized and authorized by 2 seniorfinancial accounting department employees.
8. All transactions keyed into the computer via terminals aresubject to a wide range of input controls.
9. The internal audit department conducts frequent reviews ofbreakdowns in internal control and how these are corrected.
Page 15 of 17
10. To enter White Cross (Pty) Ltd’s computer facility, warehouseand processing plant, an individual must place his thumb on abiometric scanner.
YOU ARE REQUIRED TO:
a) Briefly describe each of the components of internal control.(10)
b) Indicate to which component each of the policies, procedures orconditions listed in
points 1-10 relate. (10)
c) Explain the difference between an automated control and a manualcontrol (1)
d) Suggest four ways in which computerization (IT) benefits acompany’s internal control. (4)

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A In an effective internal control system control system the following five components work to support the achievement of an entitiys mission strategies and related business 1 Control environment Integrity and ethical values Commitment to competence Board of directors and audit committee Managements philosophy and operating style Organizational structure Assignment of authority and responsibility Human resource policies and procedures 2 Risk assessment Company wide objectives Process level objectives Risk identification and analysis Managing change 3 Control activities Policies and procedures Securityapplication and network Application change management Business continuity backups Outsourcing 4 See Answer

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In: AccountingQUESTION 1 (25 MARKS)While you were involved in the audit of your client White Cross...QUESTION 1 While you were involved in the audit of your client White Cross(Pty) Ltd, the following policies, procedures and conditionsexist:1. There is strong segregation of duties in the inventory cyclebetween receiving inventory, its custody, the issue of inventoryand the recording of all movement in the inventory records.2. The board of directors and senior management meet every sixmonths to identify the challenges facing the company and howsuccessfully they are being addressed.3. The company’s organizational structure is designed in such a wayas to provide the board with a realistic chance of achieving itsobjectives on an ongoing basis.4. The human resource department goes to great lengths to definethe skills necessary for each job category and to recruit suitablepersonnel.5. The financial director meets frequently with the financialaccountant to ensure that information required to be disclosed byIFRS is properly accumulated, recorded and processed.6. Access to the company’s network is controlled by the use ofcomprehensive logical controls, eg: user IDS’s, user profiles,passwords, and is granted on a need to know basis.7. The recording in the general ledger of sales, purchases, etc,processed by the computer is achieved by passing journal entries.All journal entries are scrutinized and authorized by 2 seniorfinancial accounting department employees.8. All transactions keyed into the computer via terminals aresubject to a wide range of input controls.9. The internal audit department conducts frequent reviews ofbreakdowns in internal control and how these are corrected.Page 15 of 1710. To enter White Cross (Pty) Ltd’s computer facility, warehouseand processing plant, an individual must place his thumb on abiometric scanner.YOU ARE REQUIRED TO:a) Briefly describe each of the components of internal control.(10)b) Indicate to which component each of the policies, procedures orconditions listed inpoints 1-10 relate. (10)c) Explain the difference between an automated control and a manualcontrol (1)d) Suggest four ways in which computerization (IT) benefits acompany’s internal control. (4)